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Sunday, August 12, 2007

Broken Record - Risk Avoidance and the Burden of Compliance

Yesterday was the usual Saturday morning hockey. Not a good day, the team was not playing well. Clare as goalie saved nine, but let in six.

Usual chat among parents at the start of the match. One parent complained about the treatment of her son at a leading Sydney boys' school, about the school's obsession with rules. This led to a broader conversation about the current Australian obsession with rules, risk avoidance, compliance and security.

The forthcoming APEC meeting is affecting life in Sydney in a variety of ways greater even than the impact of the Olympics. As a simple example, the girl's hockey competition has been cancelled on the Saturday, reducing by one the number of games in what is for most of the team their last season playing for the school. No one objected to the meeting itself, all questioned the scale of the precautions being taken.

As the conversation proceeded, every parent had a different example of the way in which current obsessions from moral hazard through police checks to insurance problems had affected their life. There was a general feeling that something was seriously wrong, few ideas as to how the problem might be addressed.

I have recently written a number of posts dealing with these issues because they concern me. For those that are interested:

Still beating the same drum, on 8 June Risk - lock out and lock down arrive in Australian schools talked about the new security provisions introduced into my daughter's school, provisions that added to fees but did nothing to make me feel more secure about my daughter's safety. Quite the reverse, in fact.

I have no doubt that our obsession with risk and moral hazard is starting to choke the life out of our society. Ignoring issues associated with individual freedom and responsibility, the economic costs are becoming huge.

There are the direct costs we can all see, at the simplest level things like increased school fees to cover the additional security. However, I think that these are now dwarfed by indirect costs that are much harder to identify and quantify. These costs arise from the way that our obsessions affect the way we do things.

Compliance requirements affect and complicate every business process. This has direct costs in that compliance has to be paid for. As more resources are devoted to compliance, to maintaining the system, fewer resources are available to actually do new things. But then there are indirect costs as well in that business processes simply become less efficient, more time consuming. So we have fewer real resources because of direct compliance costs, while the yield on those resources that we do have left after compliance costs falls because of reduced efficiency.

I think that most people, like the parents I spoke of earlier, recognise that there is something wrong. There appears to be an almost pervasive sense of unease. What, if anything, might be done about it all is the problem.

The core difficulty lies in the the fact that while there is a measure of agreement that there is something wrong in a general sense, the processes that have created the current position continue. We still want individual things controlled, fixed.

In all this, there is a crunch coming that will force change.

Australians have an expectation that their standard of living will continue to increase. We also have an aging population. The maintenance of living standards in the face of an aging population depends upon productivity increases. This is where the crunch will come.

My suspicion is that impact on productivity of our current obsessions with risk and compliance is now at the point that the required productivity increases will not be possible. In this event, fundamental systemic change is likely to be forced upon us.

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